by Travis Johnson, Stock Gumshoe | August 6, 2020 11:52 am
I came back from vacation with quite a few questions about this latest Ian King promo, and I’ve also gotten it myself a few times in the past couple days so I guess it’s still being actively mailed… and we’re going to take a few minutes to figure out what his “Great American Reset” pitch is all about.
Like so many pitches these days, this teaser ad for Ian King’s Automatic Fortunes ($49 intro price, renews at $97) comes in the form of a “special presentation” that’s done cable-news style, with an interviewer — in this case, Jeff Yastine — quizzing the newsletter pundit about his exciting idea… here’s a little taste of the transcript:
“JEFF: You’ve gone on record to say that America is about to undergo unprecedented economic growth…..
“IAN: About every decade, the economy takes a small step backward in order to take a giant leap forward. I call it a “reset” because the weak, inefficient companies die out during these times, while forward-thinking, innovative companies propel the economy forward.
“JEFF: So, it’s a shakeout. The weak die. The strong thrive.
“IAN: That’s right. And by “strong” … I’m talking about innovative companies that can quickly adapt to a new era. And if you invest in those companies, you won’t just double your money — you could triple, quadruple or even 10X your investment.
“JEFF: Incredible. That’s enough to turn $1,000 into $100,000. And gains like these are now possible because we’ve just entered one of these resets?”
We’ll not harp too much on the bad math there (no, “10X” does not turn $1,000 into $100,000… that would be, wait for it, 100X), but that’s a reasonable if oversimplified way of looking at economic cycles. Recessions create opportunities when stale old firms get into trouble and are supplanted by new startups, who can more easily disrupt the marketplace because of the weakness of those larger players.
Of course, this ain’t a regular recession… and we have no idea how it will play out. Sometimes the old players with strong balance sheets are the survivors while the new guys who are burning cash flounder, it all depends on who is helped and hurt… and, of course, the monsoon of easy money from the Fed could help prevent a lot of older and less innovative companies from going out of business even if this coronavirus recession is prolonged.
King basically says that “recessions bring better markets,” and perhaps that will be true, if you can predict the next year then you’re way ahead of me. This is a little more from the ad:
“Over the last four decades, we’ve had four resets … 1987, 2000, 2008 and … 2020.
“In each instance, the stock market dropped by 30% or more, triggering a reset, and then bounced back … by leaps and bounds.”
I guess that’s true, though the market has already recovered from its 30% drop in March, and was priced pretty optimistically before that… so other than some bankrupt retailers and hurting airlines and similar companies who got the direct and immediate impact of the shutdowns, there hasn’t been much of a “reset” just yet, the longer-term recessionary impact of the pandemic is still really just being guessed at. And, of course, those “bounce back” moves don’t always move on a predetermined schedule — King is right about saying that the market “bounced back” by 400% after the 2008-2009 collapse, but that’s 11 years later, and if you held through the collapse in 2008 you probably didn’t get back to “even” until sometime in 2012 or 2013.
But we’re not here for the big picture about a “reset,” nobody knows what the market will look like over the next 18 months (he says “We have a one- to two-year window to profit from the Great American Reset of 2020. But if you want the biggest gains, you will want to act now” — but, of course, without “act now” pressure people are less excited to sign up for your newsletter)….
No, we’re here because partway through they dangled the real bait of the ad, that Ian King has a little stock that will lead the way to 10X returns and make us all buckets of money.
Or, in his words:
“I’ll discuss a stock that our viewers can buy for about $10 in just a moment, so they can have the chance at these kinds of profits.”
So… let’s dig through and check the clues, shall we?
Here’s the lead-in:
“When it comes to investing in forward-thinking, innovative companies, I want a lot of reward and limited risk.
“To do that, I find ways to stack the odds in my favor.
“And my research team just came across one very powerful way to do that…
“By my estimate, this virtually guarantees a specific technology will lead the U.S. economy out of this reset and surge higher….
“It’s Presidential Memorandum O-2518. It declares that ‘America must be first’ in a new technology called Spectrum. The president made this declaration in 2018, and I think that it will virtually prevent America from ever suffering from another economic pandemic like we had with the shutdown.”
Hmmm, King had a long-running ad that pitched this mysterious notion of “Spectrum” last year — is he just re-touting the same thing?
Let’s keep an open mind, but so far it sounds that way. What other clues do we get?
“Those who invest in the companies at the forefront of Spectrum technology will reap massive gains. And today, I’m going to reveal the company at the forefront of it all. It trades for about $10 a share, but I could see it zooming much higher in the years ahead.”
And then plenty of blather that’s pretty light on the clues…
“No. 1-rated stock to buy today….
“It’s a little-known company that isn’t just positioned to profit from Spectrum technology … it will be at the forefront of this massive shift.
“If it performs like other stocks in prior resets … it could potentially double, triple or even 10X in the years to come as Spectrum technology’s rollout transforms America.
“Of course, there is always risk with any investment, so I’d never recommend putting in more than you can afford to lose. But with a $10 stock, even a small starting stake can set you up for big returns.”
So “Spectrum,” of course, is still just a semi-mysterious way to tease 5G — the massive upgrade to mobile data networks that is now underway, and expected to dramatically increase wireless data transmission speeds, which should make a lot of other big advances and heretofore unimagined products and services possible in the coming years.
And as the ad implies, to some degree the coronavirus recession is accelerating the adoption of wireless technologies — it might not speed up 5G specifically, but it is certainly increasing the demand for work-from-home and play-from-home devices that depend on fast networks (we saw that Apple sold a surprising number of Mac computers, for example, and we know that schools over the Spring and probably this Fall are sending home laptops and WiFi “pucks” to make sure students can study remotely).
Which logically should help accelerate 5G adoption, if only because it’s making 4G seem a bit weaker under the strain from all those people working and gaming and watching from home… from the ad:
“According to BroadbandNow, median download speeds dropped as much as 38% in major metropolitan areas.
“5G is the solution. We need it yesterday.”
Then we get into specific clues:
“This San Diego-based firm has tremendous upside. I wouldn’t be at all surprised if it doubles in the next few months, then goes considerably higher from there.
“In fact, this little tech pioneer just might be Wall Street’s best-kept secret.
“Because it’s already making 5G a reality.
“Right now, a handful of Americans are experiencing the network of the future, which is bringing life to all kinds of possibilities … thanks to the 5G routers and hotspots this company makes.”
OK, so that is indeed starting to sound awfully familiar… San Diego company that makes routers and hotspots? King makes it sound amazing…
“There’s no need to lay expensive fiber. There’s no need to wait for new cell towers to be built or any major infrastructure to be put in place. They simply have to install some new equipment on existing cell towers.
“JEFF: Then one simply plugs in this little device, and … boom?
“IAN: Yep. Smartphones, tablets and security cameras connect at lightning speed — transmitting data almost instantaneously.
“And because of this Great American Reset, the demand for these devices is soaring.”
So we probably already know the answer here, this is indeed just King reiterating the idea he blanketed the world with last year… but to be sure, let’s check the few remaining clues:
“This firm has already partnered with 50 of the world’s biggest telecom service providers and other leading businesses — including Uber, Barclays, DHL, Ericsson and General Dynamics, to name a few.
“And the COVID-19 pandemic has been a boon for business. As its CEO said: ‘We’re seeing unprecedented demand, spurred by the dramatic change in how we are living, working and learning from home.’
“As a result, it’s doubled production of this device.
“And here’s one thing I love.
“This tiny 5G pioneer holds over 400 groundbreaking patents. Like a mobile 5G hotspot it just launched with one of the biggest global telecom giants. And the gateways and modems it makes are necessary for the next generation of wireless networks.”
So yes, this is still Inseego (INSG), the maker of 4G (and now 5G) hotspots for fixed and mobile wireless broadband, and one of the more actively teased plays on 5G over the past year. As it was, under its previous name, Novatel, during the 4G transition a decade ago. Inseego was an early play on getting ready for 5G, it reorganized about four or five years ago to get ready for the opporutnity of 5G fixed wireless and the “Internet of Things” demand everyone saw coming, partly due to the influence of controversial hedge fund guy Phil Falcone, who served as the Chair until CEO Dan Mondor took over that role this year (Falcone said he remained a shareholder, I haven’t checked current ownership).
That high-profile connection and the 5G story, which has been a widely-touted newsletter theme for a couple years now, led to a slew of hype-y INSG teaser pitches from newsletters, including King’s own “fluorescent sand” pitch way back in the spring of 2019, then his early “Spectrum” pitches last year (which also touted Aptiv as a play on self-driving cars, spurred by 5G — something that seems to still be in the “bonus reports” teased today), then a long-running pitch from Oxford’s Dave Fessler about Inseego providing the “linchpin device” for 5G. Throw in teases from Jon Markman (“the next Cisco”), and later leaps aboard the bandwagon from Ian Wyatt and George Gilder, and sometimes it seems like pretty much everyone has teased Inseego at some point over the past year or so (the big guns at the Motley Fool haven’t gotten behind Inseego, but most of the other big publishers that come to mind have jumped on the story).
The challenge that Inseego has been gradually recovering from over the past five years is that “hotspots” are in much less demand when tablets and laptops have direct wireless connections or WiFi is ubiquitous, which has cut their incoming revenue… though that did indeed change a bit this past spring, when suddenly everyone had to work and study from home.
This is from the press release about how Inseego was ramping up production for COVID-19 demand:
“With hundreds of millions of business and government employees, students and others now connecting from home, Inseego’s plug-and-play wireless products are meeting the need for fast, reliable, secure internet connections. These products also provide a fast and easy solution for the 25 million Americans who currently have no home broadband at all by delivering high-speed internet access over a wireless network, using a compact device that fits in the palm of your hand.”
Before the coronavirus hit, the idea was that Inseego would see a surge because they were selling the first 5G products — 5G didn’t start with phones, though that’s coming now, it started with fixed wireless broadband, essentially a way for Verizon or AT&T to sell you broadband access for your home and compete with the cable networks, since the fixed 5G boxes (Verizon partnered with Inseego for this, though other companies can make similar devices) would receive a high-speed signal comparable to what you would get from a Comcast cable connection.
So in a way, they’ve really benefited from the coronavirus because they don’t have to wait for revenue growth from the slow spread of 5G networks or depend on Verizon’s interest in continuing to focus on selling fixed wireless broadband with Inseego routers… they get a one-time boost from the fact that demand is surging because suddenly the folks who were happy enough with their smartphone and a weak WiFi signal at home, suddenly need a high-speed home connection because their whole family needs to simultaneously be videoconferencing with coworkers and teachers.
Is Inseego going to be the biggest long-term winner from 5G? It seems unlikely to me, though I’ve been pretty skeptical of the long-term future for Inseego since I started writing about it last year and it has, thanks to the coronavirus, exceeded what I thought were maximum expectations already (I thought all the pressure and interest could easily drive the shares from $5 up to $8 or $9, and that happened pre-COVID, but then the COVID demand story has helped to fuel them to another big surge up to the mid-teens).
So I’m out of guesses about what happens next with this one, I’ll just re-note that Inseego and the other makers or mobile hotspots (Netgear, etc.) are not generally strong consumer brands, and don’t really have much of a “moat” in that business, which means their margins tend to get competed away as cheaper boxes get introduced. It could certainly be years before that happens, I don’t know when Inseego’s business will peak from COVID or from the first wave of 5G fixed wireless installations. Maybe I’m being too skeptical, and we’re still just at the beginning of the growth curve for Inseego.
And as luck would have it, as I was finishing up this story last night… Inseego reported its second quarter results. So what’s going on now, any more flesh we can put on these bones?
They reported year-over-year revenue growth of 44%, and a non-GAAP loss of one cent per share (they had some big refinancing costs in the quarter (retiring high-cost debt and replacing it with convertible bonds), so the GAAP loss was 78 cents/share, but analysts and investors generally ignore that). Here’s the CEO quote from Dan Mondor:
“We reported an exceptionally strong quarter with outstanding operational execution in every part of the company and over $80 million in revenue. We’re on track to launch our new 5G portfolio with multiple operators in the coming months and are seeing phenomenal performance in pre-launch field trials on live 5G networks. We rapidly increased our supply chain capacity in response to the surge in demand and continue to see strong demand for our 4G mobile products driven by work-from-home and distance learning and our 5G products as the technology is deployed in more networks worldwide.”
Inseego has some other businesses beyond the hotspot puck business, but what they call “IoT and Mobile Solutions” is mostly hotspot sales, and is 80% or so of revenue — and the other division had falling revenue in the quarter due to COVID (mostly that consists of two SaaS products, one for fleet management and another for subscription management).
I didn’t listen to the conference call last night, but I would assume that their talk about future growth was key to the investor disappointment today, because it tends to be guidance about the future that drives these story stocks, not so much current operating performance. Expectations were high, but the analyst estimates were pretty close to on-target regarding the sales number, and the non-GAAP earnings were slightly better than expected.
So no big news in the quarter, they told us it would be a big spurt of growth and it was… the question is what the next quarter and years will look like, as the surge of COVID orders for 4G pucks is hopefully replaced by demand from growing tests of 5G fixed wireless.
And with that, I’ll leave you to your own cogitating — today is actually my birthday, I’m finally entering the second half of my first century, so I’m hoping to spend the rest of the day being young and foolish. Your assignment, should you choose to accept it, is to figure out where you think Inseego goes from here, and share that wisdom with your fellow investors.
P.S. They also note that “this isn’t the first time” Ian King has made similar presentations — they cite the “Big Data” presentation he made about a year ago, which he says gave people opportunities to make some huge returns. That presentation has actually also been re-run many times over the past year, it was a pitch for Splunk and my most recent look at it is here. We started seeing those ads in August of 2019, though now it has been udpated to call it the number one tech stock of 2020, so the stock has roughly doubled since the first wave of ads.
Disclosure: Among the companies mentioned above, I own call options and/or shares of Splunk and Apple. I will not trade in any stock covered for at least three days, per Stock Gumshoe’s trading rules.
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